BEFORE NORTH SLOPE crude, before coal or zinc mining or gold
fields, even before furs, Alaska was recognized for its timber. A
continuation of the great Pacific Northwest rainforests, these woodlands
stretched from the shore to the 2,500-foot level of the mountain ranges.
Today they look much the same as they did in 1741, when the first
Russians stepped ashore on Alaska.

From the Kenai Peninsula alone, the Russians harvested nearly 3,000
board feet of lumber annually in the late 1700s. After the United
States purchased Alaska, a single sawmill in Southeast cut 1.2 million
board feet of logs in 1900.

The logs shipped from Alaska were turned into furniture, building
supplies and other wood products. More importantly, uses for those logs
created jobs in other parts of the United States and in foreign
countries. But in Alaska, timber-related employment essentially meant
cutting wood. By exporting its natural resources as raw materials,
without manufacturing finished products, the state also was exporting
jobs.

Today, the growing recognition of lost opportunities in the timber
industry is generating support for turning timber into valued-added
products and keeping jobs here in Alaska. By creating shingles, shakes,
paneling, flooring, cabinetry--anything that adds value to the
wood--profit as well as employment is increased.

Manufacturing wood products is a small but fast-growing industry in
the state. Some companies and their value-added wood products:

Alaska is rich in timber resource, with thousands of acres of
wooded land within the state's boundaries. But much of the wooded
land is owned by the federal government, which is responsible for
defining uses. One complication is land transfers under the Alaska
Native Claims Settlement Act have not been completed. Until ownership
and usage of the land is finalized, a consistent source of raw material
won't be available.

For instance, the Tongass National Forest covers 80 percent of
Southeast Alaska. Its 17 million acres--greater in size than the states
of Maryland, New Hampshire and Vermont combined--make it the largest
national forest. Mandated for multiple use (recreational and commercial
use), it is managed by the U.S. Department of Agriculture through the
U.S. Forest Service.

Timber policy for the Tongass was set in 1980 by the Alaska
National Interest Lands Conservation Act, which stipulated, among other
things, the amount of logging that could take place in the national
forest. But a new Tongass bill currently before Congress could reduce
the amount of timber available for logging, thus revamping economic
planning for timber production.

James Murchy, co-owner of Black Bear Cedar Products in Thorne Bay,
near Ketchikan, started his company four years ago. Richard Rapp has
been a partner in the business for the past year and a half. Their
company buys waste from the Louisiana-Pacific mill nearby and processes
it into cedar shingles, employing 12 people.

The business at various times "has just been hanging on,"
says Murchy. 1988 was a good year, while 1989 was not. A decline in
Lower 48 housing starts resulted in less business for the cedar-shingle
enterprise. But the owners of Black Bear Cedar Products are optimistic about 1990, feeling that the market for their products is improving.

Murchy says his biggest concern now is a steady supply of wood from
the mill. With Tongass production in limbo, he can't plan beyond
this year, he adds. Any cuts in timber allowance from the Tongass will
affect Louisiana-Pacific, in turn affecting his operation. Black Bear
has worked at diversifying its production source, buying wood waste from
other companies. But those sources also would be in peril if Tongass
production is limited.

Building Business. Dick Evans, president of United Builders
Supply, doesn't have a problem with getting wood. He's using
beetle-killed timber from around Cooper's Landing on the Kenai
Peninsula. There's plenty of the wood available for log home kits
the company ships to buyers in Japan.

In one of the ironies of commerce, trees killed by the spruce bark
beetle make good logs for home kits. Most of the killed trees are
mature and are the right diameter for log homes (8-10 inches finished).
Because the trees die standing, they dry naturally and are not
susceptible to dry or wet rot. The low-moisture content ensures against
later shrinkage, and the trees maintain structural integrity in spite of
beetle infestation.

Evans says United Builders is proceeding cautiously with this new
product line. "The demand is there. We've kind of eased into
it. We're improving our business as we go along," he
explains.

The log cabin kits are offered for sale in Japan through a brochure
distributed with various house plans. Once ordered, the kits are
produced from eight inch logs and notched. Reinforcing rods are placed
in the logs for support. Cabinets, interior partitions and additional
lumber are included in the kits. Because of differences in building
codes, the homes are shipped without electrical or plumbing systems.
Those are placed later by Japanese contractors.

Most other wood product exports from 49th state businesses also are
sold to buyers in Pacific Rim nations, primarily Japan and Korea. Japan
is a good market for value-added wood products, says Eric Downey,
research analyst for the Alaska Center for International Business.

Importing 70 percent of its wood products, the country faces
shrinking production from its traditional sources in the Far East.
Concern over rainforest viability in Southeast Asia has led to
restrictions on timbering operations there, forcing the Japanese to look
elsewhere for wood sources.

Increasing demand for "natural" products and a rising
standard of living make the Japanese market very attractive to Alaskan
producers. That nation's interest in wood products stems from a
connection with its Shinto religion that stresses interaction with
nature, as well as a desire to live in wood houses for status.

But the trade relationship with Japan is complicated -- by
communication problems and by the difficulties of breaking into a market
that is tightly controlled by Japanese trading companies, essentially
cartels. Japanese trade is based on personal relationships, which take
time to foster.

Also disquieting are growing fears that the Japanese conomy is
volatile and unstable. Companies interested in doing business in the
East are looking to Korea, Taiwan and China as additional markets that
enhance trade stability.

A major problem with developing foreign markets, as well as
domestic markets, is the questionable resource supply. In addition to
unresolved problems with federally owned timber sources, state timber
contracts are being written only from year-to-year, a cumbersome way to
ensure a source for the next decade.

Far Eastern merchants are aware of this management hurdle. In
societies that value stability, business people are reluctant to enter
into long-term agreements with Alaskan manufacturers who cannot
guarantee a stable supply of wood.

Mike McCrary, owner of Trapper Creek Timber Products in Wasilla, is
producing wood paneling and flooring for the Southcentral Alaska market.
Meeting demand in that market takes all of his product at present, and
precludes expansion into overseas markets. His wood products are
distributed by Hardwoods Inc., a Canadian firm, through its Anchorage
office.

Trapper Creek buys its logging rights from the state and the
Matanuska-Susitna Borough. After harvesting the wood, the firm planes
and produces the flooring and paneling products. cIt's not that we
want to control the whole process," says McCrary. He adds that
he'd prefer the firm concentrate only on manufacturing. The
company employs 13 people in the plant, with another 3 or 4 contracted
for the logging operation.

McCrary keeps his business going year-round, although he admits
that ensuring a steady supply of fresh-cut wood makes it a juggling act.
Again, his major concern is availability of raw timber. His business is
expanding, and he needs both more wood and a steady source of wood.

New Launches. The Wasilla businessman is expanding his business
vertically into other manufactured wood products and recently introduced
tongue-and-groove paneling. Manufactured from solid Alaskan birch,
cottonwood and spruce, the paneling is sold by Spenard Builders Supply.

Dave Carter, Anchorage manager of Hardwoods Inc., the
paneling's distributor, is enthusiastic about the product:
"It's unique and done very well. It's a beautiful
material you can't get anywhere else."

Spenard Builders put a sampling of the paneling for sale in an
Anchorage store in February, and when it quickly sold out, they
contracted for more product. Carter says the distribution plans will
center on Alaska markets. "You can sell Alaskan birch all day long
(in Seattle) and not make any money," he notes. He blames that on
the slightly higher price for a product that's already common to
the Pacific Northwest.

Don Loesche heads a group of 19 local investors who plan to finance
a Wasilla sawmill under the name Denali Resources. The mill would turn
timber from the region into finished wood products, primarily furniture
frames for manufacturers in the Northwest.

Loesche says the sawmill is expected to employ 60 people when
completed. But the start-up date remains elusive. Denali Resources had
planned a ground-breaking for the structure in the spring of 1990, but a
bill introduced in the Alaska Legislature to restrict development in the
Mat-Su Borough discouraged investors.

The bill died in committee in the last days of the 1990 legislative
session, and Loesche is optimistic that the company can make up for lost
time. He expects the enterprise to begin mill construction this summer.

The Denali Resources plan entails purchasing timber leases in the
Mat-Su Borough, around Fairbanks and Copper Center. Loesche feels the
preponderance of spruce and other hardwood makes the area's
resources particularly attractive. With so much hardwood being funneled
into paper production, the arrival of a new source for spruce is
particularly intriguing to furniture manufacturers, he says. In fact,
he feels that Denali resources' biggest hurdle in the future might
be producing enough wood product to satisfy the market.

Chugach Alaska Corp., one of the 13 Native regional corporations,
invested $20 million in construction of a state-of-the art sawmill. Its
Chugach Forest Products subsidiary opened the Seward sawmill in January
and is producing wood chips and dimensional lumber, primarily for export
to the Pacific Rim. According to Timber Division Manager Paul Tweiten,
the sawmill currently employs 55 people in one shift and is expected to
employ more than 100 when a second shift is added by year's end.

Tweiten says the sawmill was intended to diversify operations of
Chugach Alaska Corp., which previously concentrated on fisheries operations. "We've since expanded into the logging area to
maintain an even flow of logs to the sawmill. Now we're looking at
other options for additional manufacturing opportunities in association
with the sawmill operation,c Tweiten says.

Chugach Forest Products has a steady source of raw wood, utilizing
its own holdings in Southcentral Alaska around Prince William Sound, as
well as stumpage sales and log purchases from other areas. The company
also is buying beetle-killed timber from Cooper Landing on the Kenai
Peninsula.

Tweiten says Chugach is looking for other ways to diversify its
wood products manufacturing. One possibility being considered is a
medium-density particleboard plant that would be built near the sawmill.

Timber production in the state has increased enormously since the
Russians first harvested wood. In fiscal year 1989, Alaskan loggers
produced more than 1 billion board feet of logs. The state's 1989
wood exports were valued at $612.6 million, a 29 percent increase over
1988.

With wood resources declining in mature forests and established
logging areas around the world, Alaska has the potential to capture a
larger share of the international market. If the problem of ensuring a
steady supply of raw material can be solved, the state may once more
become an important exporter of timber. But to maximize the economic
potential of those exports and to build a more viable domestic economy,
Alaska also must find ways to enter the middle market by adding value to
that prized natural resource.

COPYRIGHT 1990 Alaska Business Publishing Company, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.